With interest rates at an all-time low and many people changing jobs and experiencing financial difficulty as a result of the pandemic, remortgaging is an option many homeowners are exploring. In fact, around a third of all home loans in the UK are actually remortgages. But is remortgaging likely to be an option for you and will it save you money? We asked Phil Leivesley, Senior Mortgage Adviser, from award-winning mortgage broker MB Associates to tell us more about the benefits of remortgaging.
What is remortgaging?
Remortgaging simply means switching your mortgage on your current home to a new deal, either with your existing lender or a new lender, mainly to obtain a more competitive rate and save money. With the property market currently being so busy, lenders are competing to offer attractive mortgage products. While you could save money on your monthly payments by switching, you may have to pay an early repayment charge or exit penalty if you decide to move to a new deal before the end of your existing mortgage term. That said, it may still be worth it, so let’s look at the benefits of remortgaging.
What is the ideal situation to consider a remortgage?
In essence, remortgaging could work well for you if you have a substantial deposit. If you have at least 40 per cent equity in your current property, then you could potentially remortgage and secure a rate of less than one per cent. There are even some two-year fixed rates available at 0.95 per cent. If you are prepared to commit to a longer-term, you could obtain a fixed-rate deal with Barclays at 1.49 per cent for seven years, or a fixed rate deal with Virgin Money at 1.95 per cent for ten years (at the time of writing).
If you have a lower deposit (the amount of equity in your property), it could still be worth remortgaging. Remortgage options are available to everyone regardless of the amount of deposit you have. The lower the deposit, the higher the interest rate. If you have more equity in your property, you will be more likely to get a very competitive rate.
What about Early Repayment Charges?
Even though you may have to pay an early repayment charge if you exit before the end of your mortgage term, it may still be worth remortgaging. Have a look at the terms of your current mortgage and run the numbers.
What are the main reasons people consider a remortgage?
Although the main reason people tend to remortgage is to save money, there are other reasons to consider it. These include:
- You want to pay off a large chunk of your mortgage – you may have inherited some money or received a large bonus at work. You may want to reduce the amount you borrow to obtain a more competitive rate.
- You want to borrow more money – maybe you want to extend your property or carry out other home improvements. Remortgaging could be a cheaper borrowing solution than a traditional loan, as the interest rate is likely to be much lower.
- Your property has significantly increased in value – if your home’s value has risen considerably since you first took out your current mortgage, you might be eligible for a lower rate of interest as you could be in a lower loan-to-value category. Remember, the more equity you have in your property the better.
- You’ve split with your partner – if you and your partner are splitting up and you want to stay in the property you currently own together, you might want to buy them out. In this instance, you could remortgage, provided you can show that you can afford the payments on your own.
What paperwork do you need to remortgage?
If you are switching to a new lender, you will need to show proof of income in the form of three months’ worth of your most recent payslips and your latest P60. You will also need three months’ worth of bank statements. And you’ll need to be on the electoral register and show proof of ID.
If you are self-employed, the documentation required will depend on whether you work as a sole trader, as the owner of a limited company, or as a contractor. However, you’ll typically need personal and business statements for the last three months, two to three years’ worth of tax returns if you’re a sole trader and two to three years’ worth of audited accounts if you run your own limited company. If you’re a contractor, you’ll need personal and business bank statements plus proof of income in the form of your last two years’ worth of contracts, plus details of any forthcoming contract renewals. A good broker will be able to advise you on exactly what you need.
How long does it take to remortgage?
If you’re nearing the end of your current mortgage term, allow plenty of time to remortgage. The process can take at least four to eight weeks and it’s best to allow your broker plenty of time to shop around and find the right deal for you.
What if you’re staying with the same lender?
If you choose to stay with the same lender and take out a new deal then you won’t be subject to a credit check as you will have already demonstrated that you can keep up repayments. It can also save time as your lender will have all your details, including your income. This could mean it will be easier and less time consuming to get your remortgage approved. However, you may not get the best deal as there could be other more competitive remortgage products available. Remortgaging with a new lender is treated as a new mortgage application and will take longer. The new lender will want to carry out a valuation of your property.
What’s the best way to go about remortgaging?
With so many mortgage products currently available, it’s worth speaking to a reputable mortgage broker who will have access to a wide range of mortgage products.